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tv   Options Action  CNBC  April 1, 2012 6:00am-6:30am EDT

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bye-bye. this is "options action." tonight, forget mega mania. we have got a trade on rim that can make times your money in less than a year. it ain't a lottery ticket, just the options trade on the battered blackberry maker. we will show you how you can win too. to the max. shares of tjx have been on fire. they are taking aim with an options trade that has a 36-1 pay out. they will explain. total recall. the mighty short on microsoft is yet to pay off. he's got another move that can get his money back. how? the action begins right now. >> live from the nasdaq market site, the largest equity options
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exchange for melissa lee. i'm scott wapner. these are the traders here in times square. instant riches? start buying stocks. the best quarter in 14 years. the way it began, up. the goal is clear, my friends. find stocks and options that can make you more in the next quarter. let's get into money and find out how sears and bank of america is working s. this a recover or speculation? >> you mentioned bank of america and the way the banks got sold. they started working and that was a bit of a recovery play. the other names like netflix and apple and the things, i think that's kind of bubbly when you consider the market caps gained. the fundamentals haven't changed a lot. feels like a bubble. >> he is saying a great point. this is a company that they supposedly are buying and will treat as a private equity
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investment. they need to make an investment. it's got a big shareholder controlling the float. then take a look at netflix. that looked like a broken model with a bounce back. i don't know that that recovered. apple is a different story. >> priceline is the other one. >> you got to mix the good and bad. the busted stocks and i don't necessarily believe on jumping on them at all. you have situations where if you are playing for recovery the pricelines and the apples and the bank of americas. >> that's on priceline too. an analyst of some on the street bumped the target to $800 on priceline. somebody has it over a grand. >> priceline is a momentum stock. the stocks come in three categories. great names and momentum names like netflix, but priceline. i think that's part of what's going on. that's what makes a bull market is when everyone participates.
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apple did not do well today. down about $10 in the brought market. the s&p managed to end up higher. that's interesting because everybody is paying so much attention to apple. they found a floor because even on monday when the s&p was through the roof, they couldn't get that much. >> the chart will end the quarter officially under $600 a share. what would have thought that. not that this means anything. >> it started the quarter at like 200. >> we said it's up 50% in the quarter. >> let's move on and one thing that has been working and high end and low end retailers. every coach and ralph lauren, there is a family dollar and family tree making new highs. he thinks they are about to commit a fashion faux pas. you would not do that with a
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finely tailored suit, pocket square, cufflinks. >> i got them all. we are looking at tj companies. t.j. maxx and marshall's is their big companies. two-year chart, we pay a lot of attention to how many months you can go without having a relationship with the average. this move since the october levels and 25 to 40 and 80% and far above trend. take a look at the same current moves in the context of the weekly charts. six months from the bottom of the trend and now through the trend and a steep move. we would say that shows how unsustainable it is. this puts it in context further. in march of 1995, march of 2012, almost going out of business. 93 cents and we have come to 40.
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put this price per share versus earnings per share. exact same time frame and price per share and earnings per share and shows another way to look at it. look at this industry group and the retail apparel. tjx is the biggest components and versus all stocks of which the group is a subset of that sector. any way you cut it, you have got to take profits as a long only player and consider it aggressively as a shirt. >> this is stock we talk about. we talked about it so many times on the halftime report hitting new highs. >> it's extraordinary. he started to point to something interesting.
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he was showing that versus the price. the pe we had 900 million shares outstanding. that can only go on for so long. how much they have been expanding in businesses. they don't have that much competition. maybe nordstrom rack, marshall's and the tx max stores. they won't grow a lot more, but you are taking a look at something that got stretched. you can't continue to play the same tricks. >> that's what's interesting about it. the fundamentals come together. >> the options market comes together has well and one of the other things about that chart is it moved with small increments and had low volatility. the price is also very low. to make a bearish bet on an out right basis, i was looking at july and you can pay about about $1 for those. this is a situation where even if the market started to get more volatile and the stock flat lined, you won't see that much decay.
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that will lift the price generally. this is a way to risk relatively little. you give yourself a decent amount of time to play out. >> what do you think of the trade. >> where we are, the s&p is up and some of the stocks that have outperformed the market and they can't continue to go parabolic . that's the key. buying an out right put. if it starts going in your direction, they pick up and you turn it into a spread and you lock it in. >> i was going to say, the interesting thing is that mike makes this point. volatility is really low. we know that the ball will stay low and get high. when they get high, guess which way the stock will go. it won't keep going higher. it will go low in a hurry. by a ton. i'm not a big fan of getting in front of names that have done well. this is different. this is as much a volatility play as directional.
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>> the stocks that had huge gains may not go parabolic . they can still go higher. they may not be at the same rate. >> we're would never suggest trying to short them, but catch the stocks that look like value plays. it's tough to do that. picking tops and bottoms is impossible, but you have to look at stocks that are cheap and those are the ones you want to think about buying. that's the way to do it. >> let's play stocks versus options. not digging the sweaters and want to short the stock, that carries unlimited risk. mike's put purchase offers a pay out to the downside and only risks $100. we will see carter later on in the show. moving on for now. people have been buying up mega tickets with abandon in hopes that they get the pay out. a corporate version of a lottery ticket out there.
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research in motion say company waiving the white flag on the earnings. investors are asking when is a buy out coming? this is a pretty amazing story considering the ceo is relatively new in that position and came out and said they did not need a dramatic overhaul and yesterday seemed to admit that now they do. >> he was named to be the ceo in january and stuck to the losing strategies or said he was not going to change the course. this was hotly anticipated and wanted to hear what he had to say. there was a lot of bad news in the stock. that was flat lined for the last couple of months here. what did you have. if you listened, you didn't have to listen so closely. it was like the death rattle for the fundamentals. they have declining gross margins and declining units. something has to happen quickly and sometime this year. otherwise it's going to go the way of palm. i think the fact that the ceo opened the door a bit more to exploring alternatives.
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>> he said the two magic words. strategic alternatives that makes all the difference in the world. >> they are willing to consider that option off the table. >> admitting there is a problem doesn't fix it. they have serious issues they have to fix. when they talked about mergers, i joked that maybe they would merge with waste management. >> let's be fair? they have a patent portfolio and could be worth several billion. >> motorola or google is trying to buy them and they had cash and the patent is worth something. people think at the high end rim, they have the legacy patents and they do have 1.75 billion and a market cap.
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there is strategic value for the right thing to leapfrog whether there other competitors. >> he will do a call spread. it's similar to call purchase, but cheaper. here's how the whole thing works. it's a bullish strategy where you call and reduce the cost. you want the stock to go to that high strike and make the most money. with that said, what's the trade? >> i'm not bullish on the company and i don't think they will turn it around on their own. this trade is like you said, a lottery ticket. i will look out to january 13. i'm going out almost nine months and way up. i think the deal if there is a deal happens somewhere in the mid-to high 20s. by the time they get in there, the stock will be in the high teens. what we want to do when it's about 1435, i bought the january 27, 27 1/2 call supreme. i paid 75 cents for it.
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i sold one on the january 27 calls at 30 cents. the max loss is 75 cents. i lose up to 75 and below 20 i lose 75 cents and make ten times my money. >> you defined your risk. that's the beauty of a stock like this. >> often times when you go through the strikes, you don't necessarily monitize the value, but in this instance, the thesis is that someone comes in with a partnership that changes everything. being short that upside call is great. what ends up happening is that collapses if there is a cash bit. >> we are often not big fans. that upside call usually is relatively very, very cheap. in take over names and that's yahoo and rim, that is not the case. people are playing for a take over and they buy that out right. dan is using that to his advantage and it takes all the sense in the world. >> you usually blast me. >> wait.
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we haven't done stocks versus options. there is still time. want to buy 100 shares in hopes of a take out? that will cost you. the call spread risk $75 and offers a nearly 10-1 pay out. the only real problem is if it works, you will so rich all your relatives will be rounding you for mone. send us an e-mail. options action at cnbc.com. we will answer you after the show on our website. "options action".cnbc.com. we post updates and do check it out. here's what's coming up next. >> it's not a pretty vista. this month dan made a bearish bet on microsoft, but the stock has been flat. with money left, is dan ready to pull the plug? find out the answer when "options action" returns. >> time for pump up the volume, names that were heating up this week. this pharmaceutical player
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focuses on treating diabetes and the stock is through the roof. bristol-myers squibb wants to buy the company out and they flaired up the call volume, betting a bidding war will give them a shot in the arm? who is it? the answer when "options action" returns.
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where are options traders
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pumping up the volume? amalyn farther suit calls. call volume was almost 17 times the average daily volume. >> time now for total recall where we look back on the trade that is neither winning or losing. taking aim at microsoft with a bearish trade after working out and the stock moved against him. he limited his losses and here's how. >> on "options action," just because you risk less doesn't mean you will make more. unfortunately that's what happened with dan's bearish trade on microsoft. he thought share his come too far too fast. >> a lot of things have to happen to keep the gains. >> shorting the stock is not a good idea. >> i love this company! >> to define his risk, they bought the april 31st strike put
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for 60 cents. he needs the strike to fall below by more than the cost of the trade or below $30.40. but 60 cents? spend money like that, and we could end up like this. so to spend less, dan then sold the april 29th strike put for 20 cents and created his put spread. he did something even better. he made making money easier and here's how. between the 60 cents he spent on one and the 0 cents he collected on the other, he reduced the cost by a third to just 40 cents. now instead of needing microsoft to below 30-40, he can make money if they fall by more than the 40 cents he spent on the trade or below $30.60. >> i thank you in advance. >> before you thank us too much,
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keep in mind that there is a trade off. by selling that put, dan reduce the cost and limited the gains to the differences of the strike of the put he bought and strike of the put that he sold. good thing he did cut cost. shares of microsoft have been flat leaving dan in a lurch and in a race against time. dan must make a choice and the fans are tuned into the show. we only want to know one thing. what will dan do now? before we answer that, let's drill down on why we use these strategies. they save you money and here's how. if dan bought that april 31 strike call he would have lost about 40 cents or 2/3 of his investment. the put costs $40 and can be sold for a $20 loss.
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the value declined with the value he bought offsetting the loss. losing is never fun, but when you risk less, you lose less. that said, what are you doing on this one? >> i already made my decision and sticking with this here. i lost half the value and the stock is trading where it was almost a month ago when i put the trade on. we have earnings that will come and start in about a week and a half. what my bet is that maybe you get out unchanged, barring news just because a lot of tech stocks have gone too far too fast. the q1 report whether they are good or bad or whatever, the real risk to me is the guidance for the balance of the year and if we see hiccups, the stocks will. >> they haven't begun to reap the benefits. of windows 8 for mobile yet. >> assuming there potential benefits. >> by all indications or many at
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this point it seems to be a winner. >> that seems to be a consistent theme that we hear about. always a solution for the hurdles and shortcomings they have been facing in the past. i take a look at a company like google and it will be interesting from my perspective. it's tough at this point to try to compete either with the droid and google and apple. i don't know that they can do it. >> no reason to not just let it go. >> let's go back to the charts with microsoft. >> i think they are just fine. the stock is in a relative under performer. microsoft is stalled out and that's a sign of a downsize. i would stay in. >> if you want updates on the trades, follow us on twitter on cbbc options. do check us out. final call after this.
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welcome back to "options action"s. you are looking at shares of the pharmaceuticals. this is an interesting story. they got what could be the first weight loss drug approved in more than a decade. >> we expect the fda decision on or about the 17th and the topic for the web. it is a fascinating name. options are incredibly expensive before an fda action. you have to be careful with what kind of strategy you use. it's easy to go broke. >> the advisory panel a few weeks ago was already positive. they go along with that and questions about heart-related effects. the efficacy was in question, but that was the side effects. >> you think about the potential downside and why they would be careful.
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you are right about one thing. that's 50% of the stock price. >> the cardio problems, these drugs are not going to have to go through that gauntlet. they are ahead of that curve. >> for may come on the other side. time now for the final call and the last word from the options. >> i like staying with the trade and don't bust them for selling 30 cent options. >> this is not a table pounder, but what the possibility is looking out nine months. >> i like the put buy and what is creating that growth thaw are seeing and if it's not backed up by revenues. >> looks like the time expired. more "options action," go to our website and see you next friday at 5:00. money in mo is up right after the break.
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